Why USD/JPY Could Reach 90

Over the past 6 weeks, USD/JPY has had a tremendous run. On Feb 1, it was trading at 76 and today, it rose above 83.50. This 7.5 yen move impressed everyone, particularly given the lack of meaningful correction. But the burning question in everyone’s minds is how much further can USD/JPY rise. A few weeks ago, I pointed to the break of the weekly cloud cover as the main technical reason for my pro USD/JPY call. Since then, the pair has rise a mere 250 pips. This is peanuts compared to how much USD/JPY has run on past cloud breaks. From the top of the cloud to the top of the initial rally (not counting the pullback and continuation), USD/JPY rose 29 Yen (97 to 126) in 1995, 18 Yen in 2000 (108.5 to 126.85) and 12 Yen in 2005 (108.5 to 121). From a levels perspective, there will be resistance at the 2011 high of 85.50. In fact, we could even see a bit of consolidation around that level. But even if we low ball the potential move based on how weekly cloud breaks have performed in the past and then downgrade it some more, USD/JPY could easily reach 90.

The best part is that there is fundamental support for the rally. Unlike the Federal Reserve who has frozen monetary policy, Japan is on a rampage to keep the Yen weak through easy monetary policy. The massive current account deficit reported last week also changes the inherent dynamics in the Yen. Although this is expected to be temporary, for the time being Japan is no longer a surplus country. At the same time, rising U.S. yields is sending the dollar sharply higher. The only potential cause for a pullback in USD/JPY would be repatriation ahead of the March 31st fiscal year end.

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley).
As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.